Yale’s Shiller on Real Estate

The August issue of Fortune magazine has an article on Robert Shiller the Yale economist who called both the late 1990’s stock market bubble and the real estate bubble. He warned about the real estate bubble in 2003, a full three years before market turned down.

I have a saying that I formulated after the stock market crash in 1987: Every market has a guru and every guru is eventually discredited.

Clearly, Professor Shiller is the guru of the moment. And while he may be discredited at some time in the future, right now his views carry a lot of weight.

In Fortune Shiller said, “My guess is that (real estate) prices will continue to fall for awhile, but at a slower pace, and then stabilize. We’ve become very speculative in our attitude toward real estate, so there could be another boom. But if so, it likely won’t happen another five to ten years.”

Besides his guru like musings, Shiller teamed up with another economist, Karl Case, to produce the most widely watched real estate indicator, the Case-Shiller Home Price Index. They sold it a few years ago, and it now is owned and operated by Standard & Poor’s which has many indexes covering damn near everything.

The most widely watched of the Case-Shiller indexes is the one that covers residential real estate in twenty major metropolitan areas around the country. Philadelphia is not included in this “national” index. This month’s report, out yesterday, showed the first uptick in home prices in sixteen months. The uptick was modest, less than one-half of one percent, but the beleaguered real estate market will take it.